Industrial Shut-downs and Medium-Run Factor Intensity Reversals

Henry Thompson

Canadian Journal of Economics, 1990, vol. 23, issue 2, 446-53

Abstract: While short-run factor intensity reversals lead to industrial shut-downs when there are two productive factors, this paper shows that an industry can undo an intensity reversal over the medium run and avoid shutting down when there are three or more factors. Medium-run adjustment begins with a capital fixed input and extends until it has become perfectly mobile. J. Peter Neary (1978) develops a picture of adjustment with two industries and two inputs where an industry must shut down following an intensity reversal. The present study adds a third input--skilled labor or natural resources--to capital and labor.

Date: 1990
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